Mortgage where the interest rate adjusts periodically up or down through a set index. Also called a mortgage / or a variable-rate mortgage.
Gross income of a building if fully rented, less an allowance for estimated vacancies.
The period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are one year, three ors five years.
The process of paying the principal and interest on a loan through regularly scheduled installments.
This is the actual rate of interest your loan would be if you included all of the other associated costs such as closing costs and points.
When a rental apartment building is converted to individually owned units.
Extensive remodeling of an older apartment building.
An estimate of the value of a property, made by a qualified professional called an appraiser. Also called a property appraisal.
Loans that can be transferred to a new owner if a property is sold.
Usually a short-term, fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining principal balance, due at a time specified in the contract.
1/100th of 1% expressed as margin over index rate.
Type of financing that is a promise to repay the principal along with interest on a specified date.
Financing which is expected to be paid back relatively quickly, such as by a subsequent longer-term loan. Also called a swing loan.
The process of paying additional points on the loan to reduce the monthly mortgage. There are typically two specific types: a Permanent Buydown, and a Temporary Buydown. In a Permanent Buydown, a sufficient amount of interest is prepaid to lower the rate permanently. In a Temporary Buydown, only a sufficient interest is paid to lower the payment for the first three years. The reason to Temporarily Buydown, a loan is to lower the current payments thereby more easily qualifying for the loan. This usually makes sense because income will usually continue to increase as the interest does. The most common Temporary Buydown is called 3-2-1, meaning three percent lower the first year, tow percent lower the second year, and one percent lower the third year.
One of two different types of limits for adjustable-rate mortgages. The “life cap” limits the highest or lowest interest rate that is allowed over the entire life of the mortgage. The “periodic cap” limits the amount that an interest rate can change in one adjustment period.
A net yield set by an investor to determine the value of an income producing property.
Line items on a profit and loss statement that would not be expensed on an annual basis. This category would include replacement of major building systems, such as roofs, driveways, etc.
A method used to estimate the value of a property based on the rate of return on investment.
The meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands. Also referred to as settlement.
The cost and fees associated with the official change in ownership of the property and with obtaining the mortgage, which are assessed at the closing or settlement.
Direct link to an institutional lending source.
An estimate of the value of a property based on an analysis of sales of properties with similar characteristics.
The financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loans from third party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the CBMS markets.
Someone who is willing to sign mortgage loan obligation with you in case you default on your monthly payments. Normally, the cosigner is required to go through the same application and approval process as the original signer of the loan.
A lending organization that obtains it source of funds from the commercial market.
A loan to provide improvements to the property.
A search through your existing credit history by a qualified credit bureau to determine if, and the number of times, you may have been delinquent making monthly payments on previous debts. Even when a credit report is for the most part positive, many lenders require written explanation for any negative comments within the credit report. This type of report is usually required to obtain a mortgage loan.
The periodic payments of principal and interest made on a loan.
The ratio is calculated by taking the net operating income and dividing it by the mortgage payments. A ration 1.0 means breakeven. Most lenders look for a ratio of 1.25 or higher.
One of several financial calculations performed by your lender to determine if you can afford a particular monthly payment. The DTI (also known as the obligations ratio) is the sum of all your monthly debt payments including your total monthly mortgage payment divided by your total monthly income. Typically acceptable DTI for Conventional Loan are 36 – 38%, FHA Loans are 41 – 43%, and VA Loans Are 41%.
See Teaser Rate
The part of the purchase price that the buyer pays in cash, up front, and does not finance with a mortgage. Typically between 5-25%.
The legal definition: a measure of prudence, activity or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances. In CMBS: due diligence is the foundation of the process because of the reliance securities investors must place on the specific expertise of the professionals involved in the transaction.
Report generated by an architect or engineer describing the current physical condition of the property and its major building systems, e.g., HVAC, parking lot, roof, etc. The report also determines an amount for calculating replacement reserves, if needed.
Capital raised from owners. In a commercial real estate case, a lender will also provide equity capital for a percentage of ownership.
1. A special account set up by the lender in which money is held to pay for taxes and insurance. 2. A third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement.
An appraisal term for the price which a property would bring in a competitive market, given a willing seller and willing buyer, each having a reasonable knowledge of all pertinent facts, with neither being under any compulsion to buy and sell.
Purchases loans from members of the Federal Reserve and the Federal Home Loan Bank Systems, securitizes them and sells FHLMC mortgage-backed securities to investors.
An agency within the U.S. Department of Housing and Urban Development (HUD) that administers loan programs and issues loan guarantees to more housing available.
Purchases loans from lenders, securitizes them and sell FNMA lortgage-backed securities to investors. Monthly principal and interest payments are guaranteed by FNMA, but not the U.S. Government.
A mortgage with an interest rate that remains constant for the life of the loan. The most common fixed-rate mortgage is repaid over a period of 30 years; 15-year fixed-rate mortgages are also available.
See Adjustable Rate Mortgage.
The legal process by which a lender takes possession of and sells property in an attempt to satisfy mortgage indebtedness.
A written promise from a lender to provide a loan at a future time.
One of two loan types called FHA or VA loan. These loans are partially backed by the government and can help veterans and low-to-moderate income families afford homes. The advantages of these types of loans in that they often have a lower interest rate, are easier to qualify for, have lower down-payment requirements, and can be assumed by someone else if the home is sold. Many mortgage bankers can obtain these type of loans for you.
A type of mortgage where the monthly payments start low but increases by a fixed amount each year for the first 5 years. The payment shortfall or negative amortization is added to the principal balance due on the loan. The advantages of this type of loan is a lower monthly payment at the beginning of the loan term. The disadvantages are typically a slightly higher rate than a traditional, fixed-rate mortgage loan and lenders usually require a larger down payment. In addition, the negative amortized amount increases the balance due on the total loan which can be a problem if the value of the property declines.
Total income, before deducting taxes and expenses. The scheduled (total) income, either actual or estimated, derived from a business or property.
A type of mortgage where the monthly payments start low but increase by a fixed amount each year for the entire life of the loan as compared to 5 years with a Graduate-Payment Mortgage. The advantage of this type of loan is that the loan can usually be paid off in a shorter duration than a traditional, fixed-rate loan. The disadvantage of this loan is that the payment continues to increase yearly.
High interest rate financing. Also called hard money.
A federal government agenc established to implemtn certain federal housing and community development programs.
One of several financial calculations performed by your lender when applying for a conventional loan to determine if you can afford a particular monthly payment. The housing ratio # (also known as the income ratio) is your total monthly payment including taxes and insurance divided by your total monthly income. Typically acceptable housing ratios for Conventional Loans are 28-33% and FHA Loans are 29-31%.
A measure of the overall level of market interest rates that a lender uses as a reference to calculate the specific interest rate on an adjustable-rate loan.
The sum charged for borrowing money, expressed as a percentage.
The aggregate amount of interest payments from borrowers that is less than the accrued interest on the certificate.
An individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities, but which does not accept deposits or make loans. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors also called investment banker.
A mortgage loan that exceeds the amount that is acceptable by the government if the loan were to be resold (on the secondary market) to Fannie Mae and Freddie Mac. Also called a noncomforming loan.
An agreement between the commercial property owner and the lender that assigns lease payments directly to the lender.
The cost of improvements for a leased property. Often paid by the tenant.
An arrangement in which a bank or vendor extends a specified amount of unsecured credit to a specified borrower for a specified time period.
The fee charged by a lender, to prepare all the documents associated with your mortgage.
Proposed loan amount divide by the value of the property.
A lender’s written commitment to guarantee a specified interest rate to the borrower provided that the loan is closed within a set period of time.
A period of time after loan origination during which a borrower cannot prepay the mortgage loan.
The average of the interest rates that major international banks charge each other to borrow U.S. dollars in the London money market. Used as an index for adjustable-rate mortgages.
The amount that is added to the index in order to calculate the interest rate for an adjustable-rate mortgage.
When a loan becomes due and payable.
Late-stage, venture capital financing.
Short-term, permanent financing, usually 3 to 5 years.
An entity that makes loans with its own money and then sells the loan to other lenders.
An entity that arranges loans for borrowers.
A type of insurance changed by most lenders to offset the risk of a loan when the down payment is less than 20% of the value of the property.
A type of accelerated payment program whereby payments are made more frequently usually bi-weekly or weekly rather than the traditional monthly payment. Making more frequent and accelerated payments reduces the amount of principal faster, thereby reducing the accumulated interest. The net effect can be a savings on the total interest paid
Properties are above average in terms of design, construction and finish; command the highest rental rates; have a superior location, in terms of desirability and/or accessibility; generally are professionally managed by national or large regional management companies.
Properties frequently do not possess design and finish reflective of current standards and preferences; construction is adequate; command average rental rates; generally are well maintained by national or regional management companies; unit sizes are usually larger than current standards.
Properties provide functional housing; exhibit some level of deferred maintenance; command below average rental rates; usually located in less desirable areas; generally managed by smaller, local property management companies; tenants provide a less stable income stream to property owners than Class A and B tenants.
Rental rate adjusted for lease concessions.
Usually requires the tenant to pay for property taxes and insurance in addition to the rent.
Total income less operating expenses, adjustments, etc., but before mortgage payments, tenant improvements and leasing commissions.
The written notice sent by a lender to a borrower stating that the borrower has not met the obligations under the loan contract and the lender may take legal action to enforce the agreement.
Periodic expenses necessary to the operation and maintenance of an enterprise (e.g., taxes, salaries, insurance, maintenance). Often used as a basis for rent increases.
A type of mortgage where the lender receives a percentage of the gross revenue in addition to the mortgage payments.
Commonly used for large retail stores. Rent payments include a minimum or “base rent” plus a percentage of the gross sales “overage.” Percentages generally vary from 1% to 6% of the gross sales depending on the type of store and sales volume.
Acronym meaning principal, interest, taxes and insurance, which may be combined into a single monthly mortgage payment.
Loan fee paid by the borrower. One point equals 1% of the loan amount.
The process of determining the amount of money a particular lender will let you borrow.
A charge for paying off a loan before it is due.
An artificial rate set by commercial bankers. Many banks will use the Wall Street Prime rate. This is a rate set by the top lending banks in the country.
1. The face amount of the mortage. 2. The amount of debt, not including interest, left on a loan.
A report showing exactly how much the particular home
Most lenders will classify a property by its age and needed maintenance. As an example many insurance companies will only loan on properties that are class A, meaning that the property’s age is 10 years old or less and is not in need of repair.
Taxes based on the market value of a property. Property taxes vary from state to state.
Pooled funds that purchase and hold commercial real estate.
The right of a lender to pursue a borrower personally for moneys owed.
The replacement of an existing loan with a new loan by the same borrower.
A lease agreement in which the rent increases every period for a fixed amount of time or for the life of the lease.
Monthly deposits that a lender may require a borrower to reserve in an account, along with principal and interest payments for future capital improvements of major building systems; HVAC, parking lot, carpets, roof, etc.
A portion of the bond proceeds that are retained to cover losses on the mortgage pool. A form of credit enhancement. Also referred to as reserve accounts.
The amount of money left over after you have paid all of your ordinary and necessary debts including the mortgage. This calculation is typically used with VA loans.
When a lenders buys a property and leases it back to the seller for an extended period of time.
A federally or state charted financial institution that take deposits from individuals, fund mortgages, and pay dividends.
A mortgage on real estate, which has already been pledged as collateral for an earlier mortgage. The second mortgage carries rights, which are subordinate to those of the first. Also called secondary financing.
The buying and selling of first mortgages or trust deeds by banks, insurance companies, government agencies, and other mortgagees. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value (“par”) or above, but are usually sold at a discount. The secondary mortgage market should not be confused with a “second mortgage.”
A federal government agency.
Number of basis points over a base rate index.
A formal offer by a lender making explicit the terms under which it agrees to lend money to a borrower over a certain period of time.
See Engineering Report
Monthly deposits that a lender may require to be included with principal and interest payments for the payment of taxes and insurance.
The attractively low interest rate that most adjustable-rate mortgages start with. Also called the initial interest rate.
The expense to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, landlord, or both. Typically, tenants are provided with a market rate TI allowance ($/sq. ft.) that the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance desired by the tenant.
The length of a mortgage.
The actual legal document conferring ownership of a piece of real estate.
A lease that requires the tenant to pay for property taxes, insurance and maintenance in addition to the rent (also referred to as “Net Net Net Lease”).
The underwriter is the lender or company that actually provides the money for a loan.
The process of deciding whether to make a loan based on credit, employment, assets and/or other factors.
The standard loan application used by all lenders. Also called a 1003 (ten-O-3).
Generally refers to fees charged to pay for third party costs like appraisals.
A type of government loan administered by the Department of Veterans Affairs. Eligibility for VA loan is restricted and limited to qualifying veterans, and to certain home types.
Attempts to resolve a problematic situation, such as a bad loan.
The amount of money left over after you have paid all of your ordinary and necessary debts including the mortgage. This calculation is typically used with VA loans.
Yield calculation used, in lieu of “Yield to Maturity” or “Yield to Call,” where books are retired systematically during the life of the issue, as in the case of a “Sinking Fund,” with contractual requirements. Because the issuer will buy its own bonds on the open market to satisfy its sinking fund requirement if the bonds are trading below Par, there is, to that extent, automatic price support for such bonds; they therefore tend to trade on a yield – to – average – life basis.
Concepts used to determine the rate of return an investor will receive if a long – term, interest – bearing investment, such as a bond, is held to its maturity date. It take into account purchase price, redemption value, time to maturity, coupon yield and the time between interest payments. Recognizing time value of money, it is the discount tare at which the present value of all future payments would equal the present price of the bond (also referred to as “internal rate of return”). It is implicitly assumed that coupons are reinvested at the YTM rate. YTM cam be approximated using a bond value table (also referred as a “bond yield table”) or can be determined using a programmable calculator equipped for bond mathematics calculations.